In the third article in our Selling Your Business series, we'll address process review which consists of things you should consider before deciding to sell your business.
There are eight key considerations requiring careful thought as you reflect upon the sale process. A brief explanation on each will prepare you for a more thorough discussion with the different members of your professional exit team.
Transferability issues: Some of your company's assets will transfer to the new owner easily, but some may not. Take a look at the contracts your company has with suppliers, employees, contractors, and confidential relationships. In some circumstances you may find that the legal relationship is strictly between you and the contracted party, and does not extend to your successor. Make a list of questionable contracts and share the documents with your attorney to determine your legal situation and what to do.
Prevent mass exodus: One of the last things you want to do is let your employees know your business is for sale...without controlling the news and keeping everyone stable. When managers and employees learn the company is on the market, the idea that immediately pops into their heads is the threat to their job security.
A useful device for enlisting your management team's support is the 'completion bonus'. A completion bonus is an amount of money you promise to pay key managers to 'keep the secret', stay with the company as long as needed, and be available for discussions with prospective buyers. As a buyer gets closer and closer to signing the purchase and sale agreement, the buyer will be permitted to inquire more and more deeply into various aspects of the business. These key managers have information the owner may not know, so they will need to be involved in this aspect of the sales process. You want your executives to stay at least until the business is sold, and yet they are keeping their options open by sending out resumes. The completion bonus, paid when the business is sold, creates a financially motivated commitment to remain and support the sale.
It may take two years to sell your business, and if all your key employees left for other jobs before the transaction is complete, you'll have very little left to sell as an ongoing business. This is a risk that could be disastrous, and since you can't transfer the risk, or prevent the risk, the only other action you can take to protect your exposure is mitigate it with a stay bonus.
SWOT the Market!: An analysis will need to be done on the strengths, weaknesses, opportunities and threats in the market that could affect the sale of your business. Are there only a few businesses like yours for sale right now, or a lot of comparable businesses? How does your business have a competitive advantage over the other businesses that are for sale? What are your unique selling points in today's market? Do you have a geographic advantage or disadvantage? Are there gaps in your business's capabilities? Does the market currently have any vulnerabilities that hurt your prospects? Are there promising market developments that could be opportunities for the right buyer? Is there impending legislation that could affect your business? Is the employment market hot or cold? These are suggestions of the SWOT analysis factors that will guide you in deciding if now is an optimal time to begin the sale process.
Post Business-Life Purpose: You've spent a lot of time thinking about what you might do when you sell your business, but now is a good time to become a bit more serious about it. Before, you had the luxury of daydreaming; now that the day is drawing nearer, serious thought should lead you to a short list of choices. You'll be spending years in the future, so the sooner you decide, the more apt you are to slip into the future you consciously design.
In part 4 of the series, we'll look at the remaining items as part of the process review.
Selling a business is a complex transaction that often requires a skilled broker like Joseph M. Maas of Synergetic Finance in Seattle. For additional info., visit Synergetic Finance online or check out Maas' new book Exit Insight: Getting to Sold, available at Merrell Publishing.